RESPONSES TO BLOG 48: MMT AND THE JOB GUARANTEE

Ok we had a huge number of responses. I can see we will need a Blog 49 on this topic and that there are way too many comments for me to deal with tonight. I will just hit seven themes—commentators should be able to see which of these themes their comments fall under. And I will be brief. I will deal in more detail next week with a few of these.

1. Attention Deficit Disorder: A couple of comments here, and from what I can tell a huge number of comments on other “Modern Money” blogs that are not called MMT, suffer from ADD. Some people cannot read past a single sentence. I think there are now drugs that help. Try them.

So apparently a lot of bloggers (especially those who accept MMT, but without the taxes or the JG—go figure!) latched onto a sentence, plus one word. I said: “So, can we have MMT without a JG? Certainly!” Now that followed a long discussion, including an analogy to a theory of disease and a policy to fight the disease (more in a minute), and followed by the statement by me: “I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do. MMT allows us to analyze them, and to offer policy recommendations. But if we leave out the JG in our recommendations, we are seriously remiss in our advice.”

And what would our ADD disadvantaged friends come away with after reading that? Oh, of course: “Wray admits MMT does not need JG! MMT and JG are not compatible! He’s a flipflopper!”

OMG. I cannot recommend anything but drugs. Education or explanation will not work. Please ship drugs to them. Massive quantities. I hear they got 6 figure dollar grants to try to destroy NEP and MMT. Please, allocate some of that money to drugs. They need drugs to counter the ADD. They’ll never be able to destroy MMT without drugs. They come across as completely dishonest and stupid. But I’m sure it is just ADD. Don’t deride them. Send help. Drugs. By the truckload.

2. Speaking of drugs. We’ve got a lot of BIG supporters (basic income guarantee). They want government to provide income so they can boff their bongs in their parent’s basement, and hand their mums fivers for bringing down sandwiches. OK, everyone should be entitled to bongs and sandwiches and subservient mums. I get it. Until we run out of mums to do all the work for us, this should work just fine. Fully employed mums.

But here’s the deal. All along I presented JG as an add-on. So, you BIG supporters go ahead and get the BIG passed. (LOL!) It is not a substitute for a JG. JG pays people to work and produces useful output. BIG pays people to boff bongs and hire their mums to feed them. Perfectly compatible. Those who do not want to lie about in bean bag chairs, relying on the charity of their mums, can go get JG jobs and contribute to society. It’s a lifestyle choice.

My argument was NOT against BIG. I like the idea of a bunch of flackers sitting in basements and collecting government money while contributing nothing to society (Jerrrrrrrrry!), and expecting their mums to feed them and clean up after them. (You go, Mom!)

I think the dystopian Wall-E movie is exactly the future we ought to aim for: everyone in recliners, doing nothing useful, and, indeed, having lost the ability to perambulate under our own power. We’ll all sit around campfires, boff the bongs, and sing kumbaya. We won’t need no stinking taxes or JG. (But we do need our mums.)

But, let us imagine (for the sake of argument) that we will have some transition period before we reach that Nirvana. Suppose we’ve got 25 million people who want full time jobs (as is the case in the US today—out in the real world, not in the bong-induced haze). They don’t all have mums to supply the sandwiches. Why don’t we give them the jobs they want? We’ll get the BIG and BONGS later. After we’ve all evolved a lot more to the point that we do not think work is important. (Except for mums.)

3. Why is employment a goal? Why not just hand everyone a Maserati? Recall that I began this section of the blog with a discussion of human rights and as well with the individual, family, and social costs of unemployment as well as the individual, family, and social benefits of employment. That was not a random error. It was linked to the JG. Employment is in itself an essential human right and is linked to many of the other internationally accepted human rights. Even if we add BIG and BONGS and MASERATI to the list of accepted human rights, these do not guarantee already enumerated human rights, such as the right to a job and to full participation in society. (Hint: beanbag chairs, basements, bongs, are not full participation.)

4. MMT and full employment. MMT explains why sovereign countries can afford anything for sale in their own currencies. (Note that I presented sovereign currencies as a continuum—from fixed to floating rates. Unlike some MMTers I want to include all nations that issue their own currencies. However, some self-impose constraints such that they must choose between a peg and full employment policy.) This is important. If governments face solvency constraints, they might not be able to afford public policy that they would like to adopt: decent health care for all; public education; a BIG; a JG. But once we understand MMT we see that all the usual arguments about financial affordability fall away. What matters is resource availability and politics. Any sovereign government can “afford” full employment. The question is how to get there.

5. MMT and JG. We can try to get to full employment through Keynesian pump priming (military Keynesianism, for example) or BIG. Now, neither of these directly hires the unemployed. Both rely on pumping up spending and incomes on the hope that higher aggregate demand will cause jobs to trickle down to the unemployed. Many of these unemployed do not have the education, training, job experience, or race and gender characteristics desired by the employers who more or less directly receive the extra aggregate demand provided by government policy. But maybe some left-overs will trickle down a bit. My argument is that it could require an awful lot of wage and price inflation in the primary sectors (those that tend to be more oligopolized and unionized) to get jobs to trickle down to Harlem. I do not know how many Drones the military would have to order before the US economy heats up enough to get job creation east of Troost in Kansas City. Hundreds of thousands? Millions? Billions? But I do have a pretty good idea of how much spending it will take to create a job east of Troost: the JG program wage and benefit package—let us say 12 bucks an hour. Further, and this point (I suppose) must be explored in more detail next week since most have not understood it: the JG is an EMPLOYED BUFFER STOCK. The BIG creates a STONER BUFFER STOCK. There is a difference! Gee, I wonder if firms would rather hire stoners out of basements, or workers in the JG? Given a choice, would you really take Jerrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrry? (Whose “career” consists of cheating government and then fighting against the JG on the argument that he defrauded government.)

6. MMT and JG. The other topic was MMT as a description and theory, and JG as a policy. I used a disease analogy. Science not only wants to discover what causes Polio, but seeks that discovery in order to fight Polio. Any scientist who figures out the cause of Polio but who then opposes the vaccination to prevent the disease would be treated as a social pariah. Similarly, any economist who understands the cause and solution to unemployment, but then argues against policy to resolve the problem should be treated as a social pariah. And, yet, at least some who do understand that affordability is not an issue when it comes to sovereign nations still want to maintain a huge reserve army of the unemployed. One of the “modern money but without taxes or JG” people has openly argued that he prefers massive unemployment “because it works for me”. I think that is far more reprehensible that someone who opposes full employment because he thinks government cannot afford to do anything about it. It is like withholding the Polio vaccine.

7. Alternative methods to achieve full employment. If an opponent of JG can offer a proposal that generates continuous full employment described as a job offer for anyone ready and willing to work, I’m willing to listen. I’ve been waiting for an alternative to the JG for almost 20 years. Please step forward with one.

On the proposed auction market run through something like PayPal. First: we’ve already got the auction market, with 25 million people standing ready to work full-time but with no one stepping up to hire them. Yes, there would be more offers if government offered to subsidize the wages of for-profit firms, who would then lay-off part of their labor force to hire the subsidized workers. I oppose that strategy. It doesn’t create jobs—just trades employees for the unemployed. Second, all these “computer money” schemes are trendy and attract the nerdy geeks. But these are “monetary systems” with no regulation, no supervision, no deposit insurance, and virtually no capital behind them. Just you wait. This will be the next shoe to drop in the Global Financial Crisis. If we do adopt such an auctioning scheme, at least run it through the insured deposit system. Ideally, we’d shut down all the banksters and revive the postal saving system—but anything is better than running it through PayPal.

OK, I know this is less than satisfactory, but it is over 1500 words and enough for now. More next week.

163 responses to “RESPONSES TO BLOG 48: MMT AND THE JOB GUARANTEE”

Nobody said that you said MMT and JG are not compatible, as far as I can see. There is no need to exaggerate or mischaracterize your opponents. Your arguments are strong, theirs are weak. When you do this, you only weaken your own arguments.

The above quote was taken out of context, by Cullen Roche, on the blog pragmatic capitalism. The blog gets significant traffic and is considered by it’s readers to be the “pre-imminent” resource on MMR. They received a six figure grant from conservative think tanks to disprove that a JG is a necessary part of MMT. So, instead, they came up up with the S= S-I equation and take Godley’s position on the problems surrounding chronic balance of payment deficits.

Golfer,
It looks like that post was removed as I am unable to locate it again. It came out the same day or day after Dr. Wray posted the JG Blog entry. I don’t think he (Cullen Roche) had a chance to read through the entire article and the oversight was noted rather quickly in the comments section for that site. He also has been trying to avoid “over” commenting by readers on the MMR/MMT thing (obviously did so with the quote) as it has been beaten to death over at his site. That may have been why it was removed.

Cullen says someone on the MMT is spreading this rumor to play politics.

“Geez. I can see this is starting to get very very nasty. Someone on their side is just making up blatant lies about us now, huh? I had heard about this nasty rumor through the grape vine. I actually emailed a high ranking MMTer about it to ask why they were spreading this nasty rumor about us. So no, it’s ridiculous and absurd that anyone would even make something up. MMTers are playing very dirty here by making stuff like that up….”

There are other medical analogies that might fit better. If you have breast cancer, maybe you do chemotherapy, maybe you do radiation, maybe you do surgery, or maybe a combination of treatments. There need not be just one valid answer to every medical problem, and there need not be just one valid answer to every economic problem.

Not that I know of anything I think is better than JG, but using a medical analogy that rules out the possibility seems a bit rash. If science had decided that aspirin was the one and only solution, we would not today have Tylenol, ibuprofen, or any number of other pain relievers that are sometimes better than aspirin.

And even though I disagree with Cullen, he takes his position because he thinks his answer is better than JG, not because he wants to inflict maximum suffering. Having a different opinion does not make someone evil.

Golfer1, No one’s saying that Cullen’s evil, just that his preference for a UE buffer stock, rather than an FE buffer stock seems like it’s a choice that would produce less overall benefit, taking into account moral values than the alternative. Cullen should address that claim and show that it isn’t valid.

But to do that he has to show that the harm caused to the millions who remain unemployed as a result of this choice and the lower wages for other workers who are pressured by a UE buffer stock is outweighed by the benefits provided by an economy fueled by a UE buffer stock.

Kissinger and later Wall St. commodity hedge firms had the idea that they could starve the “Useless Eaters.”
Kissinger, disavowed support for Food Aid, cheap seeds, and major irrigation projects. Goldman Sachs decided to create artifical demand for wheat,corn and rice by trading in their own accounts and forcing real prices through the ceiling. starvation on the SubContinent and Africa reached alarming proportions between 1992-2009.

Don’t forget, it’s not just the surplus population on the dole, broadly defined.

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”

Which, of course, sounds analogous to the old story of the guy who used corporal punishment on his kids and when called on it said something like: “Well my Dad used the strap on me when I got out of line and look how I’ve turned out.”

Golfer: can you please be more careful in your accusations against me? Look in my posts. Did I name anyone? Ever? Others used the C name. I never did and never will. I was referring to various comments on an unnamed blog. You continually accuse me of things I have not done. OK do I have bad manners? Go ahead and accuse my mom. I was not brought up correctly.

Was that the wrong blog and the wrong person that they identified? You are right, you didn’t name names, you identified them by their statements. I care about what you wrote, not about whom you wrote it. If “C” was not among those you referred to, then I apologize for my part in the misidentification, and any difficulty it caused you and him.

“Golfer: can you please be more careful in your accusations against me? Look in my posts. Did I name anyone? Ever? Others used the C name. I never did and never will…
Again Golfer, another false accusation. Find where I mentioned a certain individual with a name that starts with a C. You just continue to make false accusations.”

Beo, truth is an absolute defense against a defamation or libel claim. Also we’re all writing about politics as well as economics here; so the bar for defamation is considerable higher than, say, for a facebook drive-by.

OK Beowulf you have not even bothered to read my post above. “A couple of comments here, and from what I can tell a huge number of comments on other “Modern Money” blogs that are not called MMT, suffer from ADD… So apparently a lot of bloggers (especially those who accept MMT, but without the taxes or the JG—go figure!) latched onto a sentence, plus one word.” Reference was to other “blogs” and “a lot of bloggers”. Also quite interesting that you have not been seen over here in, what, ages? Suddenly you’ve taken an interest in MMP?

“OK Beowulf you have not even bothered to read my post above. “A couple of comments here, and from what I can tell a huge number of comments on other “Modern Money” blogs that are not called MMT, suffer from ADD… So apparently a lot of bloggers (especially those who accept MMT, but without the taxes or the JG—go figure!) latched onto a sentence, plus one word.” Reference was to other “blogs” and “a lot of bloggers”.”

Right and if you google the phrase, the first and fifth cites are about Cullen (the cites in between are to you). Of course you were referring to Cullen, there is literally no other blogger who’s even quoted your phrase without also quoting Cullen.
As to Joe’s point that truth is an absolute defense, there’s a small catch. The statement has to be true. Asserting that six figure dollar grants were given by conservative think tanks to “bloggers” (readily identifiable to mean “Cullen Roche”) to attack NEP and MMT is not true. Indeed, changing donor, recipient, amount or intention would not make that assertion any more true.

I think a lot of the reason there is this “one without the other” question is that MMT has already done so much
– It involves an examination of actual monetary system policy, most of which is missing from what you hear in the mainstream media
– I think this is a crucial point – it beautifully explains why austerity is a terrible idea. Brilliantly, in fact, based on an understanding of how the monetary system works. And better than more mainstream arguments against austerity.

In that sense, I think readings including myself can totally see many of the insights playing a crucial role in the public forum (e.g. explaining to some idiots who think the US is “broke” that this just literally isn’t possible) as arguments against terrible policies, and also that these arguments would be highly likely to be persuasive if only they played a bigger part of the bigger sphere.

In fact, I think Mike Norman, who I would consider the best-publicized adherent, has done a great job without invoking the job guarantee (e.g. explaining why its predictions about inflation and the dollar were correct and why Peter Shitt-types had wrong predictions)

It’s a matter of sequencing. Mike’s rightly trying to get over the hump of persuading people that we’re not running out of money and won’t leave our grandchildren any debt burden. That does come before mentioning the JG. However, this is an MMT primer; so the JG is very important.

“…And even though I disagree with Cullen, he takes his position because he thinks his answer is better than JG, not because he wants to inflict maximum suffering…”

I don’t think he wants to inflict maximum suffering…I think he believes that those that don’t compete well deserve to suffer, or at least that we shouldn’t waste a lot of time trying to help them ’cause they did it to themselves.
Moral hazard is bad for the little people – big-money fraudsters not so much.

He also doesn’t get it that any solution that gets us out of this mess will involve transfers from the government to the private sector, either by direct spending or monetizing losses. The money has to come from the only source we have and expecting the private sector to pull itself up by the bootstraps is mathematically impossible. Somehow giving money to rich people is OK but bailing out greedy mortgagees would be bad form.

In Arizona, “investors” would buy several houses at a time with $0 down and try to flip them for a profit. Usually they never made a mortgage payment, even when they were successful at it. They got rich, risking none of their own money, and now you want to “bail them out”, and the banks that facilitated them?

Sure, as MMT says, that would put money into the economy just like buying fighter planes or cutting the FICA tax (BTW, I’m sure Cullen understands that), but really, if there is to be “directed” spending, can’t we direct it to the machinists who work on the line at Boeing before we direct it to the banksters and their co-conspirators?

Oh, wait, is this also “tongue in cheek”? By “greedy mortgagees”, do you mean people who were unfortunate enough to buy a home near the top of the market with 20% down, and are now underwater, and have lost their jobs so they can’t make their mortgage payments and they can’t sell the house either? Are those the “greedy” ones?

You were defending CR’s argument to some extent…it should be clear that he is ideologically opposed to helping people that don’t make good decisions. Moral Hazard™ y’know. This was but one example.

“…They got rich, risking none of their own money, and now you want to “bail them out”, and the banks that facilitated them?…”

I don’t want to “bail anyone out”. I believe in fixing what’s broken, not giving money to people that don’t need it.
That group would be a relatively small subset of the total. Punishing the subset of people that gambled and lost doesn’t give me any pleasure, especially when I have to shoot myself in my own foot along with millions of people that did nothing wrong to do it.

“…can’t we direct it to the machinists who work on the line at Boeing before we direct it to the banksters and their co-conspirators?…”

We should direct it to people that need it, otherwise the mess will take too long to unwind.
The banksters should (that were involved in this scam) be prosecuted and punished. Banks that are insolvent should be iiquidated. Bankers shouldn’t get a penny. Helping underwater homeowners doesn’t help bankers – they don’t have any skin in the game. Banks are skimming operations that didn’t even meet their primary fiduciary responsibilities. The government is the lender of last resort. Where you got the idea I want to bail out banks is a mystery.

“…Oh, wait, is this also “tongue in cheek”? By “greedy mortgagees”, do you mean people who were unfortunate enough to buy a home near the top of the market with 20% down, and are now underwater, and have lost their jobs so they can’t make their mortgage payments and they can’t sell the house either? Are those the “greedy” ones?…”

No, it should be obvious I didn’t believe that to be true. I was being facetious.
I don’t think that the majority of the folks that are in mortgage trouble are the greedy types that were trying to cash in on the Ponzi before it crashed. I suspect that would be a small subset of the millions stuck in underwater limbo.
I personally think people so inclined should walk away and rent the house across the street. The banking system would collapse and monetization would take place. A fiscal transfer. Progress.
Alternatively we could cram-down millions of mortgages and many would be able to remain in their homes. This is just another fiscal transfer. Progress.
Or we can just do nothing and wait for the system to collapse in slow-motion while millions of people suffer, all because we don’t want to reward “bad behavior”. Probably the choice we will make.

I’m not opposed to helping people who make bad decisions … to learn to make better ones. I’d be in favor of any number of proposed financial solutions for homeowners in trouble of various sorts at the moment, including what some might call “handouts”, since a lot of their trouble was not of their own doing. I have no idea what Cullen’s position on that is. All I know about Cullen is that he thinks JG can be logically separated from MMT, and that is what I agree with.

The whole flap here is that Randy seems to have stated as much in this blog, and that is significantly different from his previous stance on the issue. I gather he once used the words “integral part”.

Otherwise, I agree with much of what you say. I have no idea how Cullen feels about bailing out big investment banks rather than homeowners. I just don’t think he should be demonized over an honest policy difference. MMT needs all the help it can get. MMT needs more friends, not more enemies.

Right, Golfer. There you go again. Accusations. There is no difference from my previous stance. Me thinks you don’t have any idea what you are talking about. I guess you did not read the preceeding blog. Also note that when all the hissy fits went on that led to the creation of a new blog, I remained on the sidelines. I said I would later address the issue. And I just did. It should be clear to anyone who actually read the blog that my position is this: anyone who understands MMT will of course support the JG. Anything less is like understanding the theory of a disease but oppose the treatment. Can I state that more clearly for you?

Have you or Cullen taken the trouble to specify what you think is at its core? If so, then why isn’t the JG part of it. It’s part of my view of the core because MMT is committed to FE w/PS. To get the PS, there needs to be a buffer stock of some kind whose size varies with business with business cycles. Warren Mosler offers the following alternatives:

— gold
— fx
— unemployment
— employed/jg/elr
— wheat

Among these an employed buffer stock is clearly the best for achieving FE w/PS. So, given that Public Purpose, and FE w/ PS are at the MMT core, it follows that until someone can come up with a better buffer stock than a fully employed one created by the JG, it will also be at the core of MMT.

Sure you can “logically separate it” by pointing out that MMT requires a buffer stock and that it’s logically possible that there be a better one than the one produced by the JG, but that doesn’t change the conclusion that right now the JG is at the core, until we can find a better alternative.

I’m not an MMT founder like you, I’m coming very late to the party, so I suppose in some sense you have the right so say what is or is not part of it. I certainly don’t. I don’t know what happens when the founders don’t agree among themselves.

Maybe I’m just confused by the semantics. There seem to be a lot of untrue and misrepresented statements flying around, and if I have given credence to the wrong ones, I apologize again.

Your statement in this blog is very clear and makes sense to me: “Can you have MMT without JG? Certainly.” I can see a clear distinction between a descriptive theory of money and a policy suggestion based on not only that theory but also on a unique set of values. MMT is valid in China with very different values. Others who understand MMT and have different values might propose different policies, even in the context of the US economy. (I agree with you that JG is better, but that is not the issue of this discussion.)

I hesitate to name any other names, but one of your colleagues has been named (in this blog, I think) and quoted as saying (I’m paraphrasing) that separating JG from MMT is a distinction without a difference. I understand that to be the opposite of your statement that you can have MMT without a JG. Maybe your colleague’s position has been misrepresented? Maybe you did not previously agree with your colleague, and your statement here is not new. I don’t know the history. I can’t tell what is true from what is not. If you can clarify those things, that would help me. I think I understand very clearly how you feel about it, based on your statements here. It’s all the rest that seems confusing to me.

What I might think is “at the core” of MMT doesn’t matter. The founders have the right to say what is or is not part of it, I think. If they disagree, which some have alleged, I don’t know how to resolve that.

Besides this MMP, most of what I know about MMT came from Warren Mosler’s web site. The JG is one policy he proposes, along with several others. He clearly separates his policy proposals from his discussions of how the fiat monetary and banking system works. I guess that’s where I got most of my understanding of what the theory “is”, and that the various policy suggestions are each a separate issue from the theory itself, although informed by it.

Randy says you can have MMT without a JG. That’s good enough for me. It makes more sense to me than to say you can’t have MMT without a JG. It seems to me we already have that.

Ignore FDO15, he’s a creep. Back over at “MMT minus taxes-drive-money and JG” he’ll be doing his usual thing of slagging you and all other MMTers off in his typically childish and pointless way. Oh aren’t blogs fun.

Prof Wray
Expect you will be glad when the primer comes to an end but well done for staying the course.
I just wanted to say I’m working through your book ‘Understanding Modern Money’ 1998. I’m glad I waited until 2 years into my debriefing. It’s great stuff.
Thanks for everything.

3. Direct control of inflation through tools such as Vickrey’s “marketable rights to value added, (or “gross markups”) issued to firms enjoying limited liability, proportioned to the prime factors employed, such as labor and capital, with an aggregate face value corresponding to the overall market value of the output at a programmed overall price level.”

Thanks, Love the reference to mentally ill! Yes, it is certainly YOUR FAULT if you are unemployed. Note that when the official unemployment rate is 4%, the official unemployment rate for African Americans will likely be about 8%. What is Mike’s views on relative incidence of mental illness by race, class, gender, nationality, and ethnicity?

Golfer keeps going on about the poverty and suffering claim. Look, that is how unemployment disciplines the working class. If losing your job did not cause poverty and suffering, it would not discipline both you and those who still had their jobs. This is the MAIN way the NAIRU “works”. Read Sandy Darity’s great work on this. The suffering unemployed are the EXAMPLES that discipline the employed. If you gave a decent BIG to the unemployed, the fear of mainstream economists is that you’d no longer discipline the work force. And this is largely because they do believe in the labor/leisure trade-off.

Speaking only for myself, there is indeed a labor/leisure tradeoff. I had a job I liked a lot, and I used to say that if I didn’t have to work, I’d do it anyway, just for fun. Someone said the key to happiness in your career is to figure out what you like to do, and then find somebody willing to pay you to do it. I think I was one of a very lucky few. I haven’t had that sort of job for several years, and since then the only reason I have worked is for money. My screen name is no accident. “I’d rather be golfing”.

JG or unemployed, the working class has no income if they don’t work. Is that not still the same discipline, even if there is a JG? How does JG remove that discipline? And if it does not, why is the “discipline” issue so important to you? Can a BIG advocate now say that all the JG advocate wants is to put the fear of poverty and suffering into the working class, and to profit from the low-priced goods produced by a permanent underclass of JG workers?

Discipline important to MOI? No, golfer, it is important to the NAIRU people. I’d be willing to offer people exactly the same pay to lay in basements and boff the bongs, or to get productive work contributing to society. I KNOW what most will choose. But you like your golfing so I would not place bets on your choice.

“…I had a job I liked a lot, and I used to say that if I didn’t have to work, I’d do it anyway, just for fun. Someone said the key to happiness in your career is to figure out what you like to do, and then find somebody willing to pay you to do it…”

Encouraging people to do what they love is good advice that I give to anyone that will listen, especially my kids.
I feel for those that can only work a job for the income and not for the love of doing it.

Since JG will keep inflation lower than an unemployed buffer stock, I see no legitimate reason to oppose it.

“I am convinced there is only one way to eliminate these grave evils, namely through the establishment of [an economy which] would guarantee a livelihood to every man, woman, and child.” – Albert Einstein

I’ve been thinking a lot about the notion of whether/how to separate JG and MMT. I have an analogy from my own discipline (computer science) that helps me to think about this. One way to formally specify the requirements for an algorithm is to talk about pre-conditions that must hold before the algorithm can be correctly applied, post-conditions that specify what should be true after the algorithm has been executed and a set of invariants that must hold at different points during the execution for the algorithm to be considered “correct”. There can be any number of different algorithms that might meet the same set of formal requirements.

It seems to me that you can look at JG as a sort of economic algorithm. The pre-conditions for it to be applicable are that it must be operating in a fiat money system and perhaps there are others that Randy might specify. The post conditions are probably moot because the algorithm is designed to never terminate. The invariants are specified in terms of how MMT understands the economy to work as well as any normative constraints that one might want to put on how it SHOULD work (e.g. “full employment”, “price stability”, or not competing with private enterprise in some ways). As long as the economy actually works in a way that maintains those invariants, the algorithm is guaranteed to be correct. The algorithm itself is the JG plan.

Using this analogy, there are any number of questions one might ask about the JG algorithm. Are the necessary pre-conditions actually satisfied? Are the invariant conditions well-specified? Do the invariants adequately capture the problem that you are really trying to solve with the algorithm? Are the specified execution invariants provably satisfied by the algorithm? Are there additional invariants that should be added that would make algorithms “better” in some well-defined way (e.g. more efficient or more optimal in some other way or have fewer side-effects)?

I realize that the economic system is much more dynamic and complex than the average computer program, but it seems to me that I’ve seen counterparts for each of these questions asked in the context of JG. I’d characterize the MMR disagreements as being something like wanting to add additional invariants to the execution that would make the JG algorithm as specified by Randy invalid. I don’t want to put words in anyone’s mouth, but it’s also possible that they believe there are other sorts of algorithms that would meet substantially all of the requirements. Other questions introduce new execution invariants that the author believes are relevant. My own concerns are more along the lines of wondering if the invariants are completely well-specified in a way that solves the real underlying problem. I have no problem with the algorithm as a solution that satisfies the invariant conditions as defined.

So for me, JG is just one of many possible economic algorithms that could be defined. I’m not sure how MMT as a discipline should be defined and to some extent I don’t care. It seems to me that reasonable people can ask different sorts of questions about the JG algorithm without rejecting all of the wonderful insights about economic invariants that have been identified by MMT authors.

It can be difficult to characterize exactly what people are actually objecting to (even for the people who are doing the objecting), but I think for the most part Randy has tried to do that and respond in these posts. It’s just that JG is an algorithm that must operate under a very complex set of invariants. It is even more true for economic algorithms than for computer algorithms that it can be very difficult (or even impossible) to prove that every possible execution path that might be taken will always satisfy the required invariants. I’m always nervous about installing new software, no matter how well tested it is, because I know how difficult it is to implement an absolutely correct algorithm. So I hope people will be excused for being just as nervous about an economic algorithm that is both complex in terms of its interactions with the economy and enormously difficult to test.

Why would anyone want to defend MMR? They have no solution for the unemployed other than the NAIRUregime. They would rather attack the JG than answer the issue in any reasonable discourse. I think they really do think the unemployed are unemployed bc they are just unable to compete in the great capitalist cesspool. Those people, the unemployed, well, they want to stay in mum’s basement forever, all twenty million or so, or, at least the big majority.

I heard someone the other day say that inflation is heating up and so he reckoned we are already near full employment. “lord, have mercy on the working man” when we have leaders like that. Better to bail out the banks. What utter nonsense. Maybe, it is time some of these profit making enterprises went bust and got replaced by co-ops . And I am not kidding.

“They have no solution for the unemployed other than the NAIRU regime.”

“3. Direct control of inflation through tools such as Vickrey’s “marketable rights to value added, (or “gross markups”) issued to firms…” (upthread)“With inflation, thus, under firm control, unemployment can be driven well down below any NIARU by appropriately increased deficits. The monetary authorities will then have no excuse for an excessively restrictive policy on the pretext of warding off inflation. As you can well imagine, this has, thus far, been a very difficult program to sell. But, the manifold benefits, social as well as economic, stemming from the near elimination of unemployment, make the effort well worthwhile….” (Why not chock-full employment?, William S. Vickrey)http://findarticles.com/p/articles/mi_hb6413/is_n1_v22/ai_n28645797/?tag=content;col1

I will wait for someone like Randy or Mitchell or Mosler to weigh in on that little gem. I will bet it is just a way to give money to corporations that they did not earn. But not to the unemployed.
In the meantime, I read something above that is somewhat more concern to me that goes something like this. Perhaps the unemployed need to be disciplined. That sounds like a conservative talking point. You know. They brought it on themselves. In that case, some of Randy’s points are not “jokes”, they are dead on. Did CR get money to disprove the JG? Or to come up with that ridiculous equation?
So if NAIRU is all you got and a scheme to pay off your cronies, I will stay with the JG. Not all the twenty million unemployed want to hang out in mum’s basement.

“I will wait for someone like Randy or Mitchell or Mosler to weigh in on that little gem. I will bet it is just a way to give money to corporations that they did not earn. But not to the unemployed.”
In case you missed the cite, I was quoting Bill Vickrey (Why not chock-full employment?, William S. Vickrey).
As in….
“Warren Mosler writes: ‘Shortly after writing Soft Currency Economics I met the late Bill Vickery at a meeting of what I recall was called ‘Social Policy’ in NYC and was directed to who were called the Post Keynesian’s, where I discovered their internet based discussion group. There I met Bill Mitchell and Randy Wray, who have subsequently become the main academic proponents of what is now called MMT’.”http://www.interfluidity.com/v2/1357.html#comment-15858

“Did CR get money to disprove the JG?”
Thanks JonF, I’ll file this under “reasonably identifiable”.

Beowulf, Yes, I saw the cite and I looked at it. I admit I have not read it all, just skimmed it. I saw something about issuing warrants and that’s where I quit. It strikes me that finacializing the unemployment situation is not the sort of thing that is going to work. It may make the bankers happy since they could participate in the trading of those warrants and maybe even start derivatives based on them. I also wondered how one figures the inflation for different industries (if any) or companies. Seems ripe for crony capitalists. But I undoubtedly got this wrong. So, I will wait, as I said, for a more authoritative opinion on the idea. But, I agree, I should not pre judge it just yet. Time permitting, I will give it a go later. But thanks for your input.

You had me laughing out loud here reading your post. Thanks for that & thanks for incisive & serious points underlying the humour. In fact, thanks for your life’s work (& all that of your colleagues).

To all the pompous dickheads

You really don’t get it do you? This is not just some academic exercise, an intellectual game for those of you who clearly have not experienced, as a parody of zoolologist Desmond Morris once put it, a chronic ‘negative banana flow situation’.

From one of those ‘untermenschen’ who have experienced this, lived it, alongside other people living it (& yes, +dying+ with it), & all the sh1t that entails, let me give you a message….

When you accept the economics that underpin MMT, and still refuse to see the transformative, paradigm changing benefits of the JG, you +are+ taking a morally indefensible position, & are, well, every bit an @sshole as the neo-liberals who designed the [email protected] we have now.

As one of those “pompous dickheads” let me just say that this sort of “you’re either with us or against us attitude” is exactly what is polarizing the whole society. If reasonable people can’t have reasonable discussions in an attempt to find common ground then we’re doomed to an eventual civil war. If you want to see evil everywhere and in everyone who disagrees with you, then you’ll certainly see it. I see a lot of decent and well-intentioned (albeit often misinformed) people everywhere who are being forced to choose up sides because there is no longer anything in the middle. JG may or may not help (I’m inclined to think it will, but there are just too many complex interactions for me to be totally convinced yet), but I’m reasonably sure that unless you’re willing to engage the doubters in a civil dialogue then the whole question is moot because it won’t stand a chance of being implemented in any form.

I’m not opposed to the 99% and the OWS movement; heck I was out marching myself in the late 60’s, so I appreciate the power that can be brought to bear on government policy that way. I really do understand your frustration and the imperative of making changes sooner rather than later. Real people are dying needlessly now, much as they were 40 years ago. But we had a pretty simple agenda (stopping a war) compared to the economic changes that are needed now. IMHO, building the needed consensus for change will require much more civil dialogue this time around.

Randall, thanks for your aknowledgement. Yes, I’m indeed in that subset of the 99%, globalised & financialised onto to trashheap of ‘surplus’ labour. Regardless, there’s a pint of Guinness & as many ‘mille failte’ as I can muster should you visit our emerald isle 😉

Paul Krueger

There’s a pretty ‘simple agenda’ right now.

Tell me, where is the ‘middle ground’ in YOU get a job & a LIFE, & I DON’T ?

Answer, there isn’t any. Come on, a minimum wage job which puts aggregate spending into the economy as well. With funding that can created from thin air.

Sure, I’ve got time for ‘doubters’, I engage with them all the time.

That’s why I qualified my comment with ‘…When you accept the economics that underpin MMT…’.

Your reply is nevertheless appreciated.

Even more appreciated would be your getting off the feather cushioned fence you’re on & supporting the MMT project in any way you can. It’s the best ‘simple agenda’ going by a country mile.

Well, first off I didn’t say “middle ground” I said “common ground” and there’s a big difference. Education can change people’s mind. So that’s how I spend 90% of my day typically. I’ve spent the majority of my time since I retired trying to learn enough macroeconomics to be able to explain some very unintuitive concepts to people who don’t have the time to do that sort of in depth learning themselves. I know I’m not an economist, but after 3 years of study I have enough confidence now to think that I’m not passing on too much misinformation. MMT has been of enormous help in that study. I’ve written a number of explanatory texts to help other people see the world as I now understand it and have a small following (20 or so) of all political persuasions who regularly read what I’m writing. That’s how this will spread; with people talking to their immediate friends and relatives to change minds. I understand that you’re convinced that JG is the best solution and are in immediate need. You’re right in that I’ve been pretty fortunate in my personal life, but I have relatives who are in what sounds like a situation that is pretty much like yours, so I do recognize how bad that situation is. I admit that I’m not totally sold on JG even though I’ve read a significant fraction of what the MMT people (and others) have written about it, but as I said somewhere, I’d be willing to give it a try if such a law were really passed in spite of my misgivings. I’m enough of a realist to recognize that a lot of mind-changing will be required before that is very likely. And in my opinion that must start by breaking down some of the more basic economic misunderstandings since arguments for JG (or any form of government intervention) will run into those “how do we pay for it” questions. So I’ll leave the marching to younger legs and work on using whatever influence I have with people to spread a little light on the subject.

I wish you and everyone else the best of luck in however you choose to work on the same issues. If confrontation helps to win converts to your way of thinking, then go for it. That’s not my style and I’ll stand by my own experience that non-confrontational informational techniques work better to change minds than sarcasm and derision do.

In defense of Cullen Roche and others, I think many of you (LRW included) are missing his point. The initial point was not to confuse the descriptive with the prescriptive. That is to say, MMT is excellent as describing the way the system works. This understanding then leads to possible prescriptions, which can then vary a bit based on your objectives, or perhaps your beliefs about how effective you could be at implementing them. Two people that agree on the way the system works can come to difference prescriptions.

Initially, Cullen Roche was blasted pretty hard by some of the academics because he believed in the descriptive components of MMT, but was not sure about the JG, and therefore by their standard did not believe in MMT at all. But here we see professor Wray saying that there are various “add ons” that could be prescribed onto the foundation that MMT laid. So yes, it does appear to be contradictory. If JG is an add-on, much in the same way the BIG is an add-on, then that is a contradiction.

I have also pointed out this contradiction on this website. MMT claims to be a macro theory providing full employment and price stability. Pavlina Tcherneva has called the separation of the descriptive and prescriptive a “flawed dichotomy”. But Wray is calling the JG an “add on”. If you remove the element of MMT that provides full employment and price stability then you basically just have mixture of Knapp and Godley’s work. This is just post-Keynesian economics. Nothing really new. The JG is the differentiating factor in MMT that makes it a comprehensive answer to the macro issues of full employment and price stability. But suddenly the JG is just an “add on”. Several people at the MMR site have noted that James Galbraith rejected the JG. Does this recent change in stance have anything to do with that?

The name is Modern Monetary THEORY. Wray claims there’s no theory in the descriptive part of MMT. It’s just a description of the world and everyone should believe it. Okay. But then he says you can’t have the prescriptive part without the JG. So the THEORY in MMT is all about achieving full employment and price stability. So you’re either contradicting yourselves or the name MMT is wrong. Because you can’t have the THEORY without the JG so how do you have Modern Monetary THEORY without a JG?

Now, maybe try to respond to that without getting upset and calling me names. Assuming MMTers are capable of that.

Peter: follow Y’s advice. I said JG is an “add on” to the EXISTING economic system–the system that includes whatever social safety net that exists. You certainly are not reading carefully. I wanted to avoid arguing about whether JG must be a SUBSTITUTE for unemployment compensation, welfare, or a BIG. Take the system we’ve got, and add on the JG. That has nothing to do with whether the JG is a necessary part of MMT. And, no, I have not changed my mind about JG because of Jamie. Jamie from the beginning argued against the JG and I argued against him. Also note that he has never claimed to be a contributor to the development of MMT and indeed denies he contributed. I still hold out hope he will come around to the JG, just as he has come around to most of the other prinsiples.

MMT is a THEORY about how to achieve full employment and price stability. Obviously, there is no THEORY in the way the system works. It just is. So why do you call your THEORY Modern Monetary Theory if you can divorce the THEORY from it? You’re not making an ounce of sense.

“It’s academically dishonest for him to have written a book about the “key to FE and PS” and then claim that the key to FE and PS is not actually a necessary part of Understanding Modern Money. But prof Wray, that’s the title of the only book about MMT and the one YOU wrote! Haha.”

Yes, as dignified as making fun of the mentally disabled. I assume your idol, Prof Wray is the epitome of dignified in your eyes, right? Honestly, I have never seen a professor of economics write anything close to this. It’s disgusting. It’s the opposite of dignified.

Also, I am still waiting for you or Wray to explain how you’ve managed to maintain Modern Monetary Theory while removing the Theory from it. It seems you guys have really slipped up here trying to remove the JG to appease James Galbraith. And now you don’t just look bad for flip flopping. You look bad for getting angry and calling everyone else names just because they called you out on your scam.

What are you doing here? Your theory about theory has absolutely no theory value at all. You’re on a merry-go-round in your own mind. A rose by another name would smell the same. Your condescention about condescention leaves me with a head ache. I’ll tell you one thing, after your behavior, I don’t want to go anywhere near anything that has to do with MMR. It appears your have replaced the T (theory) with R (revolting). Why don’t you stop attacking Randy for getting down in the trenches and participating with you and deal with the real issues you have which are philosophical and not economic at all.

You can’t answer the question either, can you? If the theoretical part of Modern Monetary Theory is the Job Guarantee, which provides full employment and price stability, then how can you eliminate the JG and still have Modern Monetary Theory?

Wray claims you can have MMT without the JG. Other MMTers have said this is wrong. Weirdly, Wray is contradicting this idea just weeks after Galbraith said he doesn’t support the JG. So it looks like a disingenuous attempt to keep Galbraith in the club.

But to peter: I cannot believe you are–shall we say–so challenged. I was making fun of mentally disabled? Do you mean the folks at MMT-JG-Taxes? Or do you mean MMR’s Mike who claimed that anyone who is unemployed at a 4% unemployment rate is mentally ill? That was Mike, not me. And the ADD comment about a certain website that will not be named was a JOKE. Can you spell that? J, O, K, E.

Can you believe that Jamie Galbraith dances to his own drummer? While he is a close friend, he has never claimed to have contributed anything to MMT, and has always opposed JG. Can I spell that out for you a bit more clearly? Maybe all caps: JAMIE IS NOT ONE OF THE DEVELOPERS OF MMT, AND HE HAS ALWAYS BEEN SKEPTICAL OF THE JG.

I am still eagerly awaiting your answer. So we have Modern Monetary THEORY. You and I know the operational realities just are our reality. No theory there. So the THEORY in Modern Monetary THEORY is obviously all in the application of this understanding. In MMT the theoretical part is the process of getting to full employment and price stability, ie, the JG. But you’ve said you can have MMT without the JG. How do you eliminate the theoretical part of MMT and still have Modern Monetary Theory? Either the name is wrong or you’re contradicting yourself.

The analysis of a set of facts in their relation to one another.
The general or abstract principles of a body of fact, a science, or an art.
A belief, policy, or procedure proposed or followed as the basis of action.
A plausible or scientifically acceptable general principle or body of principles offered to explain phenomena.
A working hypothesis that is considered probable based on experimental evidence or factual or conceptual analysis and is accepted as a basis for experimentation.

– Merriam-Webster

A set of statements or principles devised to explain a group of facts or phenomena, especially one that has been repeatedly tested or is widely accepted and can be used to make predictions about natural phenomena.
The branch of a science or art consisting of its explanatory statements, accepted principles, and methods of analysis, as opposed to practice.
A set of theorems that constitute a systematic view of a branch of mathematics.
Abstract reasoning.
A belief or principle that guides action or assists comprehension or judgment:

– The Free Dictionary

A set of assumptions, propositions, or accepted facts that attempts to provide a plausible or rational explanation of cause-and-effect (causal) relationships among a group of observed phenomenon. The word’s origin (from the Greek thorós, a spectator), stresses the fact that all theories are mental models of the perceived reality

But BIG is an add-on. It isn’t necessary for FE w/PS. Unless you can show that BIG adds to public purpose, and there’s not yet been any research on that, I don’t think the two can be put into the same category. JG now has years of research behind it.

Cullen’s initial point was that a clean distinction could be made between the prescriptive and the descriptive, and between the factual and the theoretical, and that since these distinctions could be made he could accept the descriptive and factual aspects of MMT while rejecting the theoretical and the prescriptive aspects of it. He further claimed that MMR could just describe the facts without being in the least bit either theoretical or prescriptive. So he claimed that MMR could be theory-free and non-prescriptive too. Then in one of MMR’s very first posts Mike gives the TC rule and 4% UE and 4% inflation targets, clearly immediately rendering Cullen’s claims false. -:) -:)

In claiming the above however, Cullen was expressing a philosophical position which hasn’t been accepted in the philosophy of science since the 1950s. It’s just way, way out of it, more than 50 years out of date now.

He has never taken the trouble to answer this piece and neither have the other MMR principals. I think that’s because their methodological claims were meant to differentiate their MMR brand from MMT. They were never meant to have any substance.

MMT proves that the JG as defined by Randy will provide employment for anyone willing to work while keeping demand-pull inflation in check. Everyone responding on this blog seems to agree that the resources (monetary and physical) exist in a fiat system to support a JG. So far, I have seen no one offer another alternative to provide full employment and economic stabilization at the same time. So why all the concern? I don’t get it. If we all know the resources are there to create full employment through JG, why don’t we support using them?

The only answer I can find in these blogs is ideological, and has nothing to do with MMT at all. MMR appears to me to be nothing more than a social Darwinian attempt to limit the scary reality that MMT allows for those who are independent enough in their thinking to discover the truth about money, but social Darwinians at heart. Once they know the true potential of fiscal economic policy they struggle to limit that potential by their own social Darwinian personal ideology. For them survival of the fittest has a higher priority than setting a limit beyond which no one can fall! God bless the individual at any cost to the politic at large!

There are only two paths, two choices that matter in how we deal with these challenges.

One is that of the Social Darwinians. Competition to the bitter end. A race to the bottom. Neo-liberal politics & economics continued to there only logical conclusion in the face of the existential challenge. That conclusion is global conflicts & warfare driven by competing elite factions. The masses will fare as they always have under this regime – violent death, poverty & starvation .

The other choice is co-operation, on the basis that +every+ human matters, no one left behind to be dumped in ghettoes of poverty & deprivation. Without such co-operation we will not get the emergency concerted action needed to ensure survival. MMT offers a framework for the paradigm change needed to begin the process. If a properly informed choice was presented, the vast majority would agree.

It’s that simple. We will survive with current population numbers, or few, if any at will survive. The end result may be decades, perhaps a century away, but the tipping points are soon.

As time goes on, there will be no middl;e ground. If the sociopaths & their system propped up by lies continues to dominate, ecological collapse is inevitable.

Quoting my reply would have made it clear that I in no way misrepresented Cullen then, nor do I do so now. But FDO 15 does misrepresent me, as you will see.

I’m happy to have your amplification above and to acknowledge your further reply.

However, your reply doesn’t say that your previous comment about the virtues of UE is wrong or that you prioritize FE over FP and are not advocating a variant of MMT that will not maintain an unemployed buffer stock rather than a full employment buffer stock. Nor do you question my characterization of the MR normative structure above. As I’ve already said to you in correspondence:

So, here’s a challenge. I say that your goal structure as so far stated is as I represented it in my post above. If you think I’m wrong then state what your goal structure is explicitly. Locate FE within it and prioritize FE relative to FP. I’d be very interested in seeing that and if you prioritize FE over FP then I’ll be happy tp admit I’m wrong, and agree with you that you favor FE even if you don’t favor the JG. Then I’ll further admit that you and I have very similar goal structures but only disagree on the means of achieving it.

Then we can go on to argue about means. In making such an argument however, I recommend that you tell us all what you mean by “full productivity.” As i said in another post to you:

So far, at least, I’ve not even seen a definition of FP from you. So how can I possibly tell whether FP will lead to FE, let alone whether it would be more effective than the JG at accomplishing that.

Finally on this bit:

I am really stunned that you keep using that comment to try to prove your argument. It proves nothing and was rescinded in direct response to you because you and others kept taking it out of context.

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. . . . “

That part of your comment says that unemployment is needed, and implies that an unemployed buffer stock is more valuable than an employed one. I see your reply comment as saying that your anecdotal statement was a tactical error which distracted from your main point that we “should seek FP (and hence FE).” You have not shown us in anything you’ve written that FP implies FE either logically or empirically. That, right there, is a main point of the disagreement between us.

Please stop misrepresenting other people’s positions in what has clearly become nothing more than a personal vendetta….

First, this is not personal. It is about a policy difference and it’s also about your continual fuzzing up of the distinction betwen the MMT point of view and the MR point of view, which led you to declare MR as a distinct approach in the first place.

Second, I’ll leave it to others to decide whether I’ve been misrepresenting you or not.

There is no personal vendetta here. There is only a desire to point out the actual differences between MMT and MR reflected in your own writing. These differences are in black and white. There are multiple quotes above. You’ve replied to my comments on only one of these references, and unpersuasively at that, in my view. But, again, I’ll leave that to others to judge.

I refer to MR above because the exchange occurred before the MR people added the “M” to become MMR, for whatever reason (-:) -:) -:)

OK are you confiused or confused?
I already said I’d come back to this next week. Give it a rest for a few days?
It is all just too silly–I’ll have to stop laughing in order to write the blog and that will take until this weekend. But I promise I will explain, and I’ll use these quotes from other MMTers that you have so helpfully provided.

I guess I don’t understand what’s going on here with this JG purity business. Paul Krugman: New Keynesian; Greg Mankiw: New Keynesian. Yet they prefer very, very different policies. Are MMT and New Keynesians not in the same categorical set? Is MMT necessarily more specific?

I have read that protecting children from all or most exposure to pathogens can
lead to weakened immune function later in life (“the hygiene hypothesis”). So it
may be better to let them get out in the dirt, play with pets, etc, than to shelter them
inside in nearly sterile environment. More will become sick or have life-changing
accidents during this childhood immune training period, but the resulting adult
population will probably be healthier.

This seems to be the structure of the MMR opposition to the JG: the present physical and
mental suffering produced by a large unemployed buffer stock is better for the long
term “health” of the population (of the survivors, anyway) than the outcome
under the JG.

I don’t buy this. MMR seems to assume that the suffering of unemployment is more
fruitful for individual long-term employability, productivity and creativity and for the
wider economy than the life and work experience gained under the JG. It sounds like a
right-wing Social Darwinist outlook. Maybe there are people who are more effectively
motivated by fear than by other things. But that should not be projected onto the whole
population.

Of course, fear can be an effective motivator. One wonders whether the funders of MMR
are afraid of something.

If it’s true that some conservative think tank is funding them, in order to discredit the idea that a monetarily sovereign government cannot run out of money, they must be quite disappointed as well as afraid.

However, this ends up, from the standpoint of communicating the concepts it would seem helpful to clearly differentiate between the descriptive and prescriptive aspects of MMT as a system. Because this seems to be what everyone always gets lost in, both pro and con. And it unfortunately gives the hard money camp a red herring to dismiss the whole thing, as they couch MMT as another central planning utopia from the technocrats.

If you separate it clearly, you can nail a stake in the ground and say, “OK – this is how the system works. Is everyone now in agreement? Now, lets take this foundation and let it inform our prescriptions for the economy and what role government could or should play. Clearly some people will differ in their prescriptions because of different priorities or different concerns, but at least now we do not have to waste time discussing how the government taxes and spends.”

If everyone would understand that the level of the national debt is not a problem for the government, but a financial asset for the non-government, the topics of debate change completely. That is the most important thing that MMT will bring about, if it can.

Hahahaha! This is hilarious. Sorry, but some people are saying that this isn’t the way to ‘convince’ people of certain things or whatever — I get the same crap anytime I slag off Paul Krugman or some other liberal doyen even though Krugman is slagging off conservatives every other day (and sometimes with apt wit).

Actually, I think humor is quite effective — just ask Jonathan Swift. I also think that Randy is probably right. BIG policies are ‘stoner of last resort’ focused. (I propose we call it the ‘Job Of Investing In Narly Times’ program — JOINT, for short).

Anyway, as far as the MMT/MMR divide goes, I think its all quite obviously political. You can divide people up quite clearly according to their location/job. So, some of the MMRers work in finance or live in developing countries while adhering to MMR due to their skepticism of government or their dislike of trade imbalances. Job Guarantee proponents are generally policy-oreinted people who seek to get things done at a policy level.

Beyond that I don’t think that there’s much point of changing anyone’s mind — because their goals are different. For anyone coming at the whole thing from a policy perspective it is quite obvious that the JG is the best approach — with criticisms being weak and politically naive — indeed it is something that, like welfare, once put in place will long outlive those who engineer it; a truly Rooseveltian initiative. People living in developing countries will obviously focus more on trade imbalances and, frankly, I wouldn’t blame them. Folks in finance (with the notable exceptions of Warren and Marshall, who straddle the policymaking fence) will tend to focus on tax cuts and all that.

That this has generated such factionalism is at once childish and sad. Looking at the quality of the comments here — which are usually high — is slightly depressing. Perhaps people should turn their attention in upon themselves and engage in some self-reflection. It’s psychologically and sociologically obvious why some support particular policies and others don’t. To have to rationalise this through abstractions and theories is pretty crude stuff. Come on folks, kiss and make up.

about what is views are. Also, I don’t think your comment above addressed my previous comment about why JG is at least currently at the core. So at this point, you’re talking past me.

But the bottom line on what Warren says is that MMT theory says that for price stability you need a buffer stock if you’re going to use the market. So, the question is which of the available buffer stocks ought you to use. MMT economists including Warren say that among the alternatives the best buffer stock for contributing both to FE and PS is the JG. That means that right now the JG is at the core. It may not always be at the core if somebody comes up with a better alternative than the JG. But that hasn’t happened yet.

The reason they had to add ‘Modern’ to ‘Monetary Realism’ is because the name ‘Monetary Realism’ had already been adopted/coined by Merrill Jenkins, a right wing anti-government, conspiracy-theory nut and gold standard freak. So now they are a ‘Modern’ version of ‘monetary realism’.

Out of replies. Paul, I liked your reply, very analytical and well-reasoned. Your question:

“Let me ask you, have you ever been convinced to change your mind about something after you were told (even humorously) that you must have ADD to believe as you do and needed drugs to cure you? ”

Not exactly that, but some harsh remarks, and very direct opposition to what I say coming from a person who I have reason to think may know something I don’t usually opens my mind to other possibilities and makes me think twice about whether I’m unaware of a knowledge gap I have. Some of my best learning experiences have come out of exchanges like that.

Anyway the old research I was talking about was in the social psychology of persuasion and attitude change. It showed that if you used friendly/analytical persuasion you’d get change from those really close to you in their views, and rather superficial change from those who were pretty indifferent to what you were saying. That is, they’d express agreement, but it turned out that they either just being polite in agreeing or didn’t really understand what they were agreeing.

As for the people strongly opposed to one’s position, when you use gentle friendly persuasion on them, you never get any attitude change to speak of. But when you flatly attack their views some of them will harden their position even more, while others, a considerable percentage of the whole will find themselves experiencing a cognitive restructuring, even a reorganization accepting much of what you’re telling them.

So, I think you’re right that different strokes are appropriate for different folks. But MMT is facing entrenched neo-liberal views and gentle persuasion often doesn’t work as well as very direct, and confident opposition and holding people’s feet to the fire.

I’ve found that among open-minded professionals, one can be persuasive by thoroughly explaining one’s position, and in discussion by asking questions that require your “target” to thoroughly examine his own assumptions. It’s not about being friendly or insulting, it’s more clinical and unemotional, neither positive or negative. I was affected very positively by the style of Mosler’s “7 Deadly Innocent Frauds”. It turned everything I thought I knew upside down, but without being antagonistic at all.

Golfer1, I agree that the tone of Warren’s book is very effective for persuading open-minded people. It worked for me too. The problem is that not all people are open-minded. for example, Paul Krugman, has, by now had considerable exposure to MMT and even received a complementary copy of Warren’s book that he was photographed with.

His blog posts, however, indicate that he either hasn’t had the time to look into MMT and really understand its point of view, or otherwise is simply not being honest about positions being taken by MMT authors. Also, many of us who have blogged about MMT at other sites have gotten comments which indicate that many, many people are just resistant to the MMT point of view. They won’t read blog posts or comments carefully, nor do they take the time to check links.

As I said that old research shows that some people are more likely to change attitudes and beliefs when you confront them with strong conflicts with their own points of view. There are many such people, and there’s no empirical evidence that there are less of them than there are people who respond well to friendly persuasion.

Well, Paul Krugman has a lot of skin in the game. For him to admit (even to himself) that he’s wrong and MMT is right would be an act of great courage and humility, very costly to his ego.

Confronting with strong conflicts is fine, probably necessary. That’s what I meant by asking questions that force people to examine their assumptions. Not “You’re wrong, you stupid Austrian”, but “If the budget were always balanced, where would the additional money come from to support a larger economy?”

Here’s a Youtube that got over 5 millions hits – more, I dare say, than all the MMT conference you-tubes combined. It deals with dry economic theory, but in a way that people can understand without having a PhD in economics. It doesn’t ascribe malevolent attitudes toward people who disagree with the point of view being promoted, but it clearly and forcefully states that they are in error.

This is not an “in-paradigm” MMT video, and the point is not that it is right about anything in particular, but that it is in a format that can reach, and has reached, lots of people who aren’t inclined to read economics blogs. MMT has to be accepted by the electorate before any of its policies are going to be enacted by the elected.

Instead of the bears, imagine a “deficit owl” explaining to a young owl about MMT. Then imagine a “deficit hawk” and the deficit owl discussing things, with the young owl asking the questions. Imagine seven videos, perhaps one on each deadly innocent fraud, and in the eighth one the deficit hawk morphs into a deficit owl.

Golfer1john | May 4, 2012 at 12:08 am |
“Then why JG and not BIG? They would still be free to work if they wanted.”

That’s the absolute truth. The JG is mandated work, however, and still indeterminable if that would be at a living wage depending on who one asks and I can see a Fitzhughian similarity. There is nothing preventing socially beneficial volunteer work from being performed, encouraged, faciliated with a BIG. Lottery winners don’t lament a lost ability to work, nor do people working 12+ hours earning minimum wage just to survive. I still am unable to reconcile why MMT does not go for the low hanging fruit and suggest an expansion of the already existing Job Corps to accomplish much of what the JG hopes to achieve. The Job Corps is already designed to replace UE as the buffer stock (as the direct evolution of programs such as the WPA and CCC) and clearly serves the public purpose.

If we work at the program design, the JG might actually do something useful to add to GDP. In that case, it would not bear any burden of being called “welfare”. And the JG has the added advantage of putting something on your resume, rather than hanging out in the basement. It becomes a home you can return to again, if you are laid off and no blemish of “give away” attached. At least that’s how I see it.

Plus there are some definite few who would rather work than be supported on a dole. In fact, I bet some of these workers would be good to have around. Just my guess. Our task is to find useful work. That is why I suggested a federal infrastructure company. That may be a bridge too far, but we need some thinking here. This whole discussion of whether the JG is “in” MMT or not strikes me having become silly. But then I am not an economist.
I look at this as a program. You can agree or not, your choice.

Except for things that would make a particular worker more competitive in the labor market, it’s easy to make the case that JG is not “welfare”. The things they would do are useful, things that people would pay for, if they only had the money. Like distributing food to people who can’t pay for it, or building houses for people who can’t afford to pay the going price. I think a lot of volunteer organizations would pay their volunteers, if they had money to pay them with.

Job Corps sounds great, but it doesn’t pay the participants, it provides training, education (GED), and help with job-hunting to low-income 16-24 year olds. From just a quick look at their web site, it seems to be an entitlement, so will expand (probably has been recently) to meet the demand. It’s run by the Dept of Labor, but the services are performed by private contractors who would be delighted to do more of it, I’m sure. I can see JG directing eligible participants to it as needed, but JG still would pay them while they do Job Corps.

One less thing to have to “invent” in order to implement JG. VISTA and Peace Corps come to mind also, as answers to the “what would they do” question.

I’ve spent quite a lot of my life in & around the world of the unemployed. This includes being a co-founder of a worker co-operative & later some years a Co-Operative Development Worker, which brought me into contact with a lot of voluntary sector initiatives. I’ve lived years in areas of high unemployment.

(Side note. Don’t underestimate the willingness of ‘stoners’ to self-motivate in the right circumstances. The worker co-op I co-founded was a vegetarian/wholefood restaurant (called ‘Munchies’, what else!). All the members were ‘stoners’, but everybody grafted 17hrs/day, 7days/wk for over three months to fit out the shop we rented, to be ready for opening. It was a work of art – some members were art school grads. It lasted over 3 years, low paid & hard work. But everybody gained great skills & experience & went on to greater things in their lives. We paid off all the loans we took out – it ended with a small net profit, all bills paid.)

Let me tell you, the JG would appeal enormously to most of the unemployed & the social, community, environmental & charitable NGOs that would be queing up to participate. There would be challenges of scale at present unemployment levels & some modest organisational & other overhead needs to be met too. But I would argue we probably wouldn’t need to actually accomodate all the unemployed. Increasing aggregate demand will quickly expand the number of ‘normal’ jobs. Minimum wage will not attract so many with large families to support and/or those with better prospects of picking up a better paid job. But, in all countries I’m aware of, the largest group of unemployed is the young, typically with no dependents. The JG is a perfect fit for these.

Ireland had something quite similar to JG, albeit part time (& part time waged) – the CE, or Community Employment scheme (some small remnant remains, but not much. I kmow many people who enjoyed their time on it. Many expanded their horizons & got new & positive life direction from it. Otherwise unaffordable community projects got implemented & were widely appreciated. A JG on a similar (but full time) basis would be a win-win-win. Add in some optional, vocational training & educational elements – even better.

The social benefits really are immense with a well designed JG. And I’m certain that’s achievable.

“The reason they had to add ‘Modern’ to ‘Monetary Realism’ is because the name ‘Monetary Realism’ had already been adopted/coined by Merrill Jenkins, a right wing anti-government, conspiracy-theory nut and gold standard freak. So now they are a ‘Modern’ version of ‘monetary realism’.”

I think that’s slightly revisionist John.

The reason they changed from MR to MMR was because some naughty Brit (no names mentioned) deliberately misstated MR as MMR on one of Cullen’s blogs because he took great exception to their personal remarks against the people whose work they were trying to hijack, and MMR, to Brits, anyway, is a controversial vaccine for measles, mumps and rubella which was rumoured, wrongly, to cause autism in kids.

When MR started, if you typed the words into google you got Cullen’s ‘Monetary Realism’ at no. 1 and Crazy Merrill Jenkins’ ‘Monetary Realism’ at no.2. Now Jenkins’ page has slipped down the list to no.4. Pretty certain the ‘measles, mumps, rubella’ comment came after they suddenly decided they wanted to be ‘modern’.

That comment just spells out the acronym and yes I think Randy did use it once after the change.

Unfortunately the blogs on MR around the end of January 2012 have mysteriously disappeared so I suppose they can get away with reinventing any reason for the change but it could be a dangerous move. It’s not that easy to revise history completely on the Internet.

You know I have this silly idea, which undoubtedly should be regarded as requiring my own medication, but why not make this discussion about the theoretical issues under consideration? Believe it or not, there is a straight forward course of action we can take to direct our chatter toward theory: Let’s have a real, written debate. We’ll have a moderator, rules–a format–and we’ll have a real debate about the Jobs Guarantee and why we should or should not advocate such policy.

You wrote Randy, “MMT will live and die by its logic and evidence, not by personalities. This isn’t the Oscars.”

And this is exactly right. Cults, cliques, the latest fad faction, who succeeded in try outs for General Hospital and Days of Our Lives–none of this matters. I suppose one might argue the drama keeps the unfolding story entertaining, but I wouldn’t much agree unless real theory is being debated. I can’t say anytime I’ve read about Newton versus Leibniz I’ve come away more entertained. The Bohr/Einstein debates however, much more productive. I’m all for a good battle on theory (just watched Mayweather teach Cotto about boxing theory). Good theory is entertaining, brilliant minds debating theory is entertaining, the rest of who’s in what group and what that club’s president says is nothing more than the inefficiency in human interaction. It’s a waste of time. Our time should be focused on a pursuit of the knowledge of the truth and good decisions based on it, not on social arrangements or popularity contests.

I think if we want to have a real slap down, drag out battle on theory, MMT should pick a representative, the opponents their rep, and we should have a battle of arguments. Let’s have some rules and have a real debate about the issues, not who’s in which denomination this week, and boy that person’s comments were so mean. It’s grown men time.

Or we can act like real grown men, not associate ourselves so personally with propositions (we’ve all believed false ones at times) ,work together with open, fair minds and simply examine arguments to identify the truth value of conclusions, and build this set of true propositions into a coherent, consistent, correct theory.

Something tells me were more likely to go to war. So, who’s up for a debate? I say we vet these issues vigorously, either as a team or as opponents. But let’s make it a point to get to those issues.

Robert
I’m not sure a popularity contest will cut it.
The core MMT guys have been fighting popular opinion for the last 30 years. I wouldn’t expect or want them to change their ways now.
They do their work, they publish it, stand by it and try to explain it to the rest of us.
They don’t go from Realism to Modern Realism to Diagonalism via Revisionism every 5 minutes or try to prove that 1 = 1 + (1-1).
How can you have a debate about full employment with someone who thinks unemployment is good for you?

I’m not encouraging a popularity contest–quite the opposite (perhaps you miswrote?). Rather, I would like us to get back to the issues. Whether we do that through cooperation or competition, let’s get back to the issues.

Between you, me, and the fly on the wall, I would much prefer the talent here and amongst the opposing parties be used toward cooperative theory vetting, but let’s be realistic: The chances of everyone acting like big boys and girls with a common goal of identifying and supporting true theory and good policy is slim to none. Humans like to fuss, they like to seek hero worship, to be the star at the Oscars, the champion, the winner. We are anything but a peaceful bunch, we are a competitive bunch. Dog eat dog is the way of our world.

So given humans leave much to be desired, it seems more realistic these issues will be vetted via competition. So why not have a moderated debate? A debate would get us back to the issues, providing an opportunity for the parties involved to expose the other party’s unsound arguments and false beliefs. This will allow the audience to learn and decide for itself.

I don’t suspect my suggestion will bear much fruit, but if nothing else hopefully it gets the discussion back onto what matters, not onto whether the JG is a belief one must ascribe to, to be MMT. Who cares what MMT’s entrance fee is? What matters is whether the JG is a good or bad idea, whether it will achieve the goals it is intended to achieve, and so on. Whether so and so is part of the clique or not or whether the entrance fee has been changed by Randy, is a waste of time.

Economics is a science, it shouldn’t be Protestant Christianity with its ever increasing denominations. We should get down to the business of what is true and what is false, what is beneficial policy and what isn’t. The social aspects of this whole fiasco are a distraction from important matters.

I mean really, do we want the discussion to be able whether Randy’s comments were mean, appropriate, professional, defamatory, good for public image, or whatever, or do we want the discussion about the JG, what it is, how it works, and whether it is good policy? I couldn’t care less about Randy’s comments everyone is all up in arms about. “They were so mean, so unprofessional…” Blah, blah, blah, those are social concerns, not concerns over ideas. Let’s vet the ideas. A neutrally moderated, public, written debate would be a way of doing this efficiently instead of 20 years of, “Well, I’m not talking to so and so, because he was so mean,” or, “This person’s moral character is flawed, so I’m not engaging with them.” Let’s be efficient, let’s get to the issues and figure out what is true and what is beneficial. We don’t have time for social distractions–we have a country about to head directly off a cliff into the austerity abyss. We don’t have the luxury of fussing over school yard politics. We need to get these issues figured out and get to implementing what’s best. Let’s focus on that.

If JG is a core component of MMT, then the debate between MMT and MMR needs to take place, the “schoolyard politics” needs to be worked out before the next step can be taken. To change public policy, there needs to be a large groundswell of support, not a turbulence of conflicting ideas.

If it is not, then perhaps the way forward is to set JG aside for the moment, and focus on the portion of MMT on which MMT and MMR agree, and the policies that flow from that portion; and convincing the rest of the world that MMT-inspired policy is something worth trying. That won’t happen in blogs followed by dozens or even hundreds of people. It’s going to take millions.

Either way, MMT and MMR (and, yes, Paul Krugman) need to be allies in the struggle, not enemies. As long as they are fighting each other, none of them is going to win against the likes of Larry Summers or Paul Ryan.

Passion … sure. I just think it would be best if everyone spoke as if they assumed good intentions on the part of those who disagree with them. Even if the assumption is false, I think your argument is stronger for having assumed it.

What’s core is the need for a buffer stock to get to price stability. Among the available choices the best is an employed buffer stock implemented through the JG paying a living wage. When and if MMR can come up with a better buffer stock than this we have a new ball game. But until then, the JG IS core to MMT.

Robert
You won’t be surprised but I am still not convinced its a good idea.

It’s not the JG that is the bone of contention here and your last paragraph says it all.
One side thinks that, now we know it’s do-able, let’s make full employment the prime policy goal of the state because they ‘believe’ in Win Win.
The other thinks unemployment is good because it toughens people up so they can better compete.
You can’t have debate about the truth and falsehood of that. It depends on your religion.

The guys that have pulled the ideas together over the last 30 years are surely entitled to incorporate the idea of a JG into their own acronym and others are equally entitled to go their own way. I just wish they would but they can’t because any credibility they have comes from the original work of Mosler, Mitchell and Wray and the only way they can conceivably stay in the game is to maintain the association even if that means attacking the pioneers.

I no longer post on their sites but other MMTers think they can still get something positive out of engaging with them. Fair enough.

It’s not the JG that is the bone of contention here and your last paragraph says it all. One side thinks that, now we know it’s do-able, let’s make full employment the prime policy goal of the state because they ‘believe’ in Win Win. The other thinks unemployment is good because it toughens people up so they can better compete. You can’t have debate about the truth and falsehood of that. It depends on your religion.

Having a debate isn’t so much about convincing the opponents, but members of the open-minded audience.

And I’m not sure you are representing the opposition fairly/correctly. I think “better perform” is a preferable choice of words to “better compete”. The argument is, the threat of unemployment functions as accountability to the employed. Without the potential for unemployment, the system would be plagued with moral hazard. The potential for unemployment is necessary to maximize per capita production in order to maximize aggregate production.

And I do not believe MMTers would disagree with this. I believe MMTers would point out supporters of the JG in fact share the same moral hazard concerns. MMTers account for this concern by not seeking to eliminate all forms of unemployment, only involuntary unemployent for those who want to work and do a good job. People will still get fired for poor performance. There will still be the transient unemployed (e.g. those looking for different opportunities, etc.) . The objective is merely to remove unemployment from people who want to work and who will do a good job. The net result is compassion with accountability. The JG is not a charity, it is opportunity with accountability. This is a strong point in favor of the ELR program.

However, there is some remaining concern whether the central planning of a significant portion of labor is the preferred method for achieving FE. Labor should be utilitarian, efficient, beneficial, and not wasteful. Government rarely exhibits those characteristics (which stems back to the effects of a reduction/elimination of accountability). I suppose this concern could be accounted for within the framework of a JG, maybe by some kind of government subsidy to private industry which employs basic labor (as is used in farming for example) to produce products and services which have real demand created by private markets. Whatever the government needs work for–infrastructure, etc.–it can hire contractors much as it does currently, carefully avoiding involving itself in too much central labor planning.

The big picture is–these issues can be vetted without the personal drama or assumptions of nefarious motives. Let’s focus on real debate over real issues and not personalities. We need to move a country forward, and focusing on the issues will lend to this much sooner than the alternative. It’s in our interest to choose to be fair and figure this out, focusing on the propositions under consideration. That means we all have to be honest and open minded.

I think that most vehement opposition to all sensible policy proposals, such as the JG, comes from hidden far-right people. Hidden, because they never reveal their true policy goals. Far-right because their true objective is to oppose well-being of the some section of the population. They divide population basically into two groups “deserving” and “undeserserving”. Well-being of the undeserving is to be objected at all costs. Their mere existence is a crime, and if it were not for the rule of law genocidal policies of the Hitler would be preferred. In short, it is the politics of hate.

Is there reasoning with such people? No, because their policy objectives are diametrically opposite to those what normal people would have. Normal people would like to see price stability and low unemployment, while the hidden far-right people would want to see any policy outcome that would punish the unworthy.

But they can not say that. All they can do is to come up with any excuse they can think of to oppose these policies, and lie if they can get away with it. Problem with these people is that they are very motivated to act politically and to particitape in any policy discussions, so they tend to dominate these discussions. But luckily hidden far right people can not be nothing more than small minority in our society so overwhelming majority will support sensible policies once they understand that all these myths and lies perpetuted by far-right people are just that, myths and lies.

As I noted with Andy a bit ago, a debate isn’t just about persuading your opponent, it’s also about persuading an open-minded audience. In this case perhaps it is only about the latter. That should be sufficient reason.

And if the opponent is as morally challenged as you suggest, then winning the debate should be easy enough.

In the UK certain regions (north England, northern Ireland) have found it very difficult to attract investment and generate jobs over many years. Unemployment is particularly high in these regions, with inter-generational dependence on unemployment allowance (and other govt benefits) unusually high. Let’s say the JG was implemented tomorrow and hey presto everyone was working (all those currently living on unemployment allowance would be getting some additional income plus something to do in the daytime). Would this solve the underlying problems? People would be active and income would have risen a bit, but would this solve the problem of lack of investment in industry and commerce?

It would help. To the extent that incomes rise, spending would rise also, causing vendors to run out of goods, and to hire more workers into the private sector in order to fulfill their customers’ orders. Eventually, more capital would have to be deployed as well.

Tax receipts would also go up. Depending on the tax structure, taxes might (eventually) have to be raised in order to prevent “overheating”, or they might have to be reduced in order to reduce the size of the JG workforce to the desired level.

Yeah but these regions are basically being kept alive by government spending (unemployment benefit and government jobs). A JG would make things better for those that are unemployed (a bit more income and something to do) but I can’t see it having a massive impact on the private sector economy. Something else is needed to get that moving again.

— Proposals about law enforcement for removing control frauds from the economy

— Proposals for containing demand pull-inflation

— Proposals for containing cost-push inflation

— Proposals for regulating the Financial System

— Proposals for Minimizing Control Frauds

— Proposals for Reclaiming Currency Sovereignty and Exiting the Eurozone

— Proposals for Fixing the Health Care System

— Proposals for Ending the Energy Crisis

— Proposals for Ending the Housing Crisis

For getting the economy going again some of these are more important than others. But no MMTer would advocate the JG alone. the Payroll Tax Holiday, and State Revenue Sharing would come first and the JG might take a number of months to kick in. By that time the first two would probably bring down the UE rate to 5% or so.

The JG would a mop-up operation to implement the right to a job, and to leave no one out of the recovery.

I agree, but SOME MMTers (who shall remain nameless) would object to that “pump-priming”.

UK,

It all depends on the difference between unemployment compensation and the JG wage. In the US, benefits for the long-term unemployed have expired, and those who can qualify are turning to disability benefits as a source of income. JG would be a big boost in income for most. If it would not be such a big boost, then the effect on the general economy would, of course, be less.

I have a couple questions after reading John T. Harvey’s blog post at Forbes entitled, “Money Growth Does Not Cause Inflation!” First, if money growth does not cause inflation, why does MMT prescribe money reduction as a cure for inflation? Second, if money growth does not cause inflation, why does MMT claim that low unemployment as a result of anything other than the Job Guarantee would produce unacceptably high inflation?

Why do you believe inflation is caused by money growth in every and all scenarios? It seems to me the one making the claim ought to be supporting the claim. What reason do you have to believe this?

For clarification purposes, MMT doesn’t claim increasing the money supply is never inflationary. Rather, money supply increases aren’t intrinsically inflationary. That is all the difference in the world.

I, and probably others, are happy to follow this line of thought in more detail.

My questions were based on my tentative agreement with John T. Harvey that money growth does not cause inflation. I probably should have added the following as my first question: Why does MMT disagree with John T. Harvey’s claim that money growth does not cause inflation?

I just skimmed Harvey’s article, and he’s criticizing the quantity theory of money. Harvey’s exactly right; this theory is flawed. To my knowledge MMTers would agree. MMTers recognize that in some very important scenarios (such as the scenario the U.S. finds itself in currently as Harvey noted), money supply increases do not cause inflation. However as we approach FE, inflationary pressures can heat up with money supply increases. To use a bit of a ridiculous scenario but nevertheless instructive; if the Treasury minted a billion for every man, woman, and child in the U.S. and distributed it accordingly, inflation would follow.

The too often overlooked mechanism for inflation is businesses, specifically business confidence. Businesses raise prices. If a business believes it will increase profits by raising prices, it will. Insofar as money supply increases do not create a pandemic in excess confidence (or, to look at this from the flipside of the coin, as long as businesses don’t lose confidence in the currency in which prices are denominated), inflation should be subdued. Present perhaps, but relatively low.

Thanks for your response, Robert. Here are the two big takeaways I drew from Harvey’s post:
1. “[T]he excess of the money supply over money demand, cannot happen in real life.”
2. “The bottom line is that the ‘money growth==>inflation’ view makes perfect sense in some alternate universe where [numerous] assumptions regarding [numerous] variables … hold, but not here, not today, not in the United States of America of 2011.”

Thank you for your understanding. Originally when I skimmed Harvey’s article, I read the following:

Explaining inflation would be much simpler if not for the need to first spend so much time debunking the popular view. But, that’s the way it is. And so, let me start with the “money growth ==> inflation” view. This is based on the equation of exchange:
MV = Py

I didn’t believe I needed to read any further as it seemed clear enough Harvey was headed into a critique of the Quantity Theory of Money. If you read a little further, however, that is not the case. It sure read like it though there for a moment, and since I would agree with a critique of the theory, I felt on safe ground to comment in the manner in which I did. While my other comments remain relevant, I wish I hadn’t mischaracterized Harvey’s.

This is why skimming articles prior to commenting is ill advised. You must read every word.

Anyhow, to handle my end of the conversation more responsibly, a number of points:

1. Regarding your synopsis of Harvey, I’m having a hard time following 1 (perhaps you could clarify?). I do agree with 2.

2. Personally, I believe the quantity theory of money, to which Harvey ascribes, is flawed. I believe inflation and deflation are more a study of human behavior and decision making as they pursue profits versus the largely mechanical theory proposed in QTM.

3. I’m not sure whether MMT accepts or rejects QTM. I know they reject money growth ==> inflation. I would agree (you would too, ironically, despite my initial impression that it was the very theory you were espousing). In addition, MMT ascribes to the belief that there are scenarios where fiscal policy is inflationary, even potentially hyperinflationary (such as the scenario I proposed earlier, as a thought experiment). I would also agree with this. In my estimation as well as I believe MMT’s and many other economists, there are two types of inflation–demand-pull and cost-push–the former caused by excess demand in the context of relatively full production (for example from excessive money/loan creation), the latter often by supply shortages. In either case, there is an imbalance of supply and demand.

4. Related to 3, as I see it, MMT basically adheres to a price (inflation/deflation) buffer system–fiscal policy, monetary policy, the JG, and perhaps others I may be overlooking–all of which are proposed to work symbiotically as a comprehensive strategy to achieve full employment and price stability. Essentially the proposal is to use the JG not only as an employer of last resort but also as a price buffer of last resort. The thesis is monetary policy, fiscal policy, and so on are to be used to bring us as close as they can to full employment without causing unacceptably high levels of inflation (let’s say anything above 3%, anually). But because these programs bring us only so close to FE before sacrificing price stability, there will remain a percentage of involuntarily unemployed, people who want to work and who will do a good job but who lack an opportunity. So instead of them sitting around collecting unemployment benefits (paying people to do nothing) and being depressed, why not put’m to work for a higher wage, help them learn skills, be productive, and have all around better spirits about life (by being able to believe there really is opportunity for everyone in America). If we can bring the economy say to 4% involuntary unemployment (meaning 4% remaining who want jobs and will be good workers but can’t find one) with acceptably low levels of inflation, then the ELR program can pick up the remaining percentage. During a downturn, the ELR program can pick up the increase in unemployed while the government corrects any missteps it took in fiscal (or some other) policy. During the recovery, the ELR can release labor back to the private sector. Basically the quantity of employed is constant while the quantities of the government employed versus private sector employed float. In effect, the ELR is a labor buffer as well as part of a comprehensive system which functions in aggregates as a price buffer.

5. Harvey spends the first two pages of his article criticizing the assumptions often made in the interpretation of QTM. I agree with his analysis. I’m actually quite glad to see a professor attacking the inflation hysteria amongst the populace who far too often believe money growth ==> inflation (particularly amongst Tea Party/Austrian types). I would add again that I do not agree with the QTM, but assuming it is true for sake of argument, Harvey’s analysis on the false assumptions amongst the money growth ==> inflation crowd is good. It is worth noting his comments to a significant degree are consistent with views I hold.

Thank you for your patience, and hopefully the above is more in keeping with proper commenting etiquette!

I didn’t believe I needed to read any further as it seemed clear enough Harvey was headed into a critique of the Quantity Theory of Money. If you read a little further, however, that is not the case. It sure read like it though there for a moment, and since I would agree with a critique of the theory, I felt on safe ground to comment in the manner in which I did. While my other comments remain relevant, I wish I hadn’t mischaracterized Harvey’s.

Boy, if nothing else, your questions Tyler have revealed what I think are some misconceptions in my own understanding of the Quantity Theory of Money and its relation to the Equation of Exchange. This dawned on me in the middle of the night of course, which is why I’m up at 5am (now 7am) fretting about this…

For some time I’ve been equating QTM w/ the EoE as well as with the proposition money growth ==> inflation (MG==>I). I’ve been operating under the belief, I believe now a mistaken one, that the EoE is simply QTM captured in an equation. In reality QTM is not EoE, it is however built on the EoE given certain assumptions about the variables. QTM in fact is equal to MG==>I.

When I actually sat down to read Harvey’s article after skimming it the first time, it became apparent to me Harvey makes a distinction between the EoE (which he believes in) and MG==>I (which he rejects). I’ve always rejected the EoE because I’ve always equated it with QTM and therefore with MG==>I. But Harvey was clearly in support of the EoE while rejecting MG==>I, while my understanding would suggest the EoE = MG==>I. Hence I realized I must have something wrong–QTM must not be both the EoE and MG==>I if Harvey is making a distinction between the EoE and MG==>I. Well, since I thought QTM was simply the EoE in an equation, the thought was I must be wrong about QTM being the same as the MG==>I thesis. I had to make a choice as to what my error was; was it in equating QTM with MG==>I or with equating it to the EoE? In proper Indiana Jones tradition, I chose poorly lol 😉 I was correct QTM is MG==>I, I was incorrect QTM = the EoE. This lead to my initial frustration with myself and thus the confusion you see in my various comments above in my representation of Harvey’s. My original comments I believe were actually correct: MMT rejects QTM aka MG==>I and Harvey rejects it too. This does not however suggest the EoE should be rejected as well (as my prior misconception would suggest) for the simple reason that the EoE is not QTM, the EoE is not MG==>I in an equation.

The process of learning–a series of errors until there are no more errors to make, at which point you will have mastery. One step closer 🙂

Sorry for any confusion. I hope you’re able to find some value in my comments despite it.

Thanks for the excellent response, Robert. It seems Harvey is basically saying:
“Stop worrying about money growth causing inflation, whether it’s money growth from monetary or fiscal policy. I have shown that the supply of money can never exceed the demand for money. Therefore, money growth can never cause inflation on its own. It needs to be combined with numerous other variables, and the chances of that happening are infinitesimal.”

And thank you for not throwing me under the bus over my error as well as for your patience amidst it.

While we may be drifting a bit from the JG, this thesis of Harvey’s is of much interest. It was a point of his I had difficulty understanding, and it was his most important point. I don’t follow his argument for how money growth cannot cause inflation in virtually any circumstance except very unlikely ones. It sounds like Harvey may be rejecting demand-pull inflation altogether, but that seems counterintuitive. Perhaps I’m missing something?

“I don’t follow his argument for how money growth cannot cause inflation in virtually any circumstance except very unlikely ones.”
Likewise, but it strikes me as a very well thought-out argument worthy of MMT’s attention. Interestingly, Harvey supports JG. However, I don’t think he would oppose President Obama pursuing full employment through pump priming aimed at the middle class.

You’re exactly right: If Harvey believes pump priming cannot lead to demand-pull inflation, then one can see how from his perspective pump priming could be regarded as a sufficient condition to bring about FE without sacrificing price stability. In contrast of course, MMT believes pump priming works to achieve FE without sacrificing much in terms of PS, up to a point (this I believe to be Randy’s position). Eventually as we get closer to full employment, continued priming pushes prices out of stability into unacceptable levels of inflation. Hence, the proposal of a JG to “pick up the remaining slack” of involuntary unemployed.

Assuming we’ve understood Harvey correctly, an interesting question is begged related to this apparent disagreement between him and MMT. It is worth noting the two positions sound relatively close in terms of the bigger picture, but nevertheless there seems to be a disagreement over whether the disequilibrium thesis of the Fed’s dual mandate is in fact true or not. In other words, it seems to me the disagreement is over whether FE and PS act a bit like electrons in the presence of each other, which is to say they only like to be so close together before repelling. The ELR program is proposed in part as a solution to this disequilibrium/eventual repulsion, working again as both an employment buffer as well as part of a price buffer system (the JG functioning principally to help buff against deflationary pressures during a cyclical downturn).

I would like to understand Harvey’s argument more thoroughly before throwing my hat in on either side of the debate. I have tended to favor the disequilibrium thesis described above, which Randy seems to also support (see his first article in this series on the JG). Harvey is a professor of economics, so perhaps he’d be willing to field a question via e-mail. I’ll see what I can gather up.

I will re-mention; I believe inflation and deflation are much more the effect of business psychology than is often given credit for. It seems to me the direct mechanism of price changes are businesses making decisions in the pursuit of profits in relation to supply and demand. The other factors involved simply influence business confidence in one direction or another by affecting supply/demand. This isn’t to say there aren’t patterns of behavior which emerge within that context, I just don’t tend to buy the idea that inflation is as mechanical in nature as some people seem to think (particularly as you find with people who ascribe to QTM).

Likewise on enjoying the chat. I tracked down a quote from Bill Mitchell which seems to be in line with Harvey’s position. Here it is: “The reality is this: if the economy is operating at full capacity—which means it cannot produce any more new products—then attempts by the government to expand spending will cause inflation. But up to that point, governments can run deficits forever without causing inflation.”

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